Home improvement loans are a specific type of real estate loan, generally used for completing home renovation projects. These are most commonly drawn from the same types of companies that issue mortgage loans, and as such are sometimes considered to be a type of second mortgage. Home improvement loans can also be issued independently by banks, as well as other lending institutions.
Some examples of the common uses of home improvement loans include, but may not be limited to:
- Repairing broken property structures;
- Upgrading windows, doors, overhanging eaves, and other such structures;
- Adding an additional room or an additional story to a home building;
- Adding office spaces for at-home-business use;
- A variety of home gardening and landscaping projects;
- Lengthening or widening driveways, garages, and/or walkways;
- Building an additional guest house or storage structure in the backyard; and/or
- Overall maintenance and property renovation.
Generally speaking, the owner is responsible for how the additional funds will be used. Because home improvement loans are generally easier to obtain than a full second or third mortgage, they are a popular option, especially as the main requirement is that the borrower use the funds only for home improvement purposes and not for other uses.
Home improvement loans are similar to home equity loans. A home equity loan is a specific type of loan in which the borrower utilizes their home equity as collateral for the loan. These types of loans are generally used for larger projects and expenses, such as:
- College tuition;
- Medical expenses; and/or
- For home repair and improvement projects.
There are two different types of home equity loans. Closed end loans would be a traditional, one-time, lump sum payment loan. The other type, or open end loans, is more of a credit line that is based on the equity of the home. It is also referred to as a home equity line of credit, or HELOC.
The repayment terms of home equity loans are generally negotiated between the borrower and the lender. Closed end equity loan payments may be different from open end loans, which more closely resemble credit card payments. The largest difference between a home improvement loan and a home equity loan would be that home equity loans can be used for a broader range of purposes.
What Is A Home Improvement Loan Scam?
The victims of home improvement loan scams are generally consumers who wish to take out loans in order to repair or improve their home properties. Home improvement loan scams are considerably difficult to detect, and as such are sometimes difficult to regulate as well. This is largely because these loans frequently involve lesser monetary amounts when compared to more significant loans, such as first or second mortgages.
Loan scams use deceit and/or misinformation in order to persuade a consumer to sign off on a loan. Home improvement loan scams may be perpetrated either by individual people, or by entire loan companies who are seeking to make a profit.
More specifically, a home improvement loan scam is a type of loan fraud. Loan fraud most commonly occurs when a person falsifies their application for a loan, which can happen in situations involving either personal or business loans. An example of this would be by misstating eligibility information in order to get better loan rates. Two other examples of loan fraud would be over reporting income, and claiming that a piece of property is more valuable than it actually is,
However, it is imperative to note that lenders can also perpetrate loan fraud against potential borrowers. An example of this would be a lender providing a fraudulent loan application to a potential borrower in a real estate transaction. Doing so could cause the buyer to suffer financial setbacks, as well as miss out on opportunities to purchase other real estate.
Fraud can be associated with any situation involving a loan. Some examples of the most common transactions where loan fraud can occur involve:
- Boats or other recreational vehicles;
- Home improvement contracts;
- Credit cards or bank applications; and
- General personal loans.
Additionally, there are other intervening parties that may be involved in the transaction and could also engage in fraud, such as brokers or the real estate agencies. Because of this, there are many different stages of the home buying process in which fraud could exist, even after someone owns their property and requests to modify their loan terms.
What Are Some Examples Of Home Improvement Loan Scams?
Some common examples of home improvement loan fraud and scams include, but may not be limited to:
- Charging fees for loans, without ever issuing the loan amount, such as a company disappearing after collecting a fee;
- Using false forms or paperwork in order to collect the applicant’s personal information;
- Issuing loans that are in violation of real estate practice standards and ethics; and
- Changing interest rates in an inconsistent manner, which generally involves some sort of breach of contract issue.
As previously mentioned, home improvement loan scams can also be initiated by the loan borrowers. Some common examples of this include:
- Using the loan amounts for illegal or unauthorized purposes, such as for uses that have nothing to do with home improvement;
- Providing false information simply in order to qualify for a loan; and
- Providing false valuations of a home in order to obtain a different loan amount, or different interest rates, generally in favor of the borrower.
Are There Any Legal Penalties For Home Improvement Loan Scams? Are There Any Defenses To Home Improvement Loan Scams?
Home improvement fraud most commonly results in misdemeanor charges for the party that executed the scam. This is associated with penalties such as:
- Criminal fines;
- Some jail time, generally not exceeding one year, which is to be spent in a county jail facility and not a federal prison facility; and/or
- Civil fines for economic damages caused to the victim.
Additionally, home improvement loan scams damage a person’s credit, as well as their ability to secure or issue a loan in the future.
Whether you are accused of loan fraud or are the victim of a home improvement loan scam, there may be a defense available to you based on the specifics of your case. The following are three of the most common defenses to loan fraud:
- Coercion: The accused may have been forced to participate in fraud, whether they are a borrower providing false information or a lender misstating the terms of the loan. However, coercion can be considerably difficult to prove, and there is generally little to no evidence supporting the claim that they took these actions under threat of harm;
- Mistake: As a defense, you may be able to assert that there was no fraud, and that it was based on a mistake of fact. Mistake as a defense is likely to be successful if there is documentation to support this claim; and
- Lack of Damages: In a civil action, the defendant may claim that the victim of loan fraud did not suffer any damages as a result of the fraudulent behavior. These damages may be monetary, or otherwise. Lack of damages is generally a weaker defense because the victim almost certainly suffered some type of harm as a result of the fraud.
Do I Need An Attorney For Home Improvement Loan Scams?
If you are involved with a home improvement loan scam, you should consult with an experienced and local mortgage lawyer. An attorney will be best suited to informing you of your legal rights and options, according to your state’s specific laws regarding the matter.
Your mortgage attorney will also be able to represent you in court, as needed. An experienced attorney can also determine whether there are any legal defenses available to you based on the specifics of your case.